Trade in the Zone

Opportunity for all

2009-08-24T16:15:00.000-04:00

We can own any stock at any time for as long or as short a time period as we wish. We must continue to use this amazing freedom to our advantage. For comparison, we can't change careers on a dime, change homes, change cars, change spouses, change nationalities. The fact that we can basically have our money in any company that makes any product or service, in any industry, in any country, for any length of time (for such little cost to switch positions) is pretty incredible. Imagine how terrible it would be if we couldn't invest alongside Steve Jobs of Apple, in a way to prevent swine flu, in the shift toward online travel using Priceline, in the shift in coffee business (k-cups).

The most exciting technology stock in the world

2009-08-09T10:44:00.003-04:00

Stec (STEC - $29.25) - SSD's (solid state drives) are the next big advancement in computers. In STEC's earnings report last week...this is the highlight - Shipments of our ZeusIOPS Solid-State drives ("SSD") into the Enterprise-Storage market grew to $57.7 million for the second quarter of 2009, an increase of approximately 375% from $12.1 million for the second quarter of 2008, and an increase of approximately 125% from $25.7 million for the first quarter of 2009. I cannot remember seeing a company grow earnings this fast...just 90 days ago the EPS estimate was $.69 for 2010. The estimate is now $2.22. Stunning growth...and it seems like growth has a long way to go according to the CEO on the call.
Here are some of the notes from my best technology resource who is usually very skeptical of new stuff but loves this SSD technology...and gave me the conviction to buy STEC at $23 originally. "Something you will want to look for is who the other big server manufacturers like Dell are going to choose for server SSD's (solid state drives). HP partnered with STEC so Dell and others will need to use SSD's to be able to compete, I haven't seen SSD's as an option on Dell servers yet. There are data centers that have 100,000 drives in one building full of servers. If one data center replaced 100,000 normal drives with 40,000 higher capacity ssd's at $1000 each that’s $40 million in sales from one building. There are thousands of data centers all over the world. Then there are all the normal size corporations that have 10 servers with 10 drives per server so that’s $100,000 per company times hundreds of thousands of corps all over the world. $58 million in sales might only be 20 customers, there are thousands of companies like this waiting to replace old servers that needed to be replaced a year ago before budgets were cut."
I have increased my position in STEC substantially by adding the February $40 calls at $3.10.

Green Mountain Coffee: Roasting Shorts on the Way to $100

2009-04-30T12:09:00.005-04:00

Wednesday night, Green Mountain (GMCR - $46) reported sales jumped 60% and earnings surged 118% to 50 cents per share (38% better than already raised estimates). In addition, the company announced a massive distribution deal with Wal-Mart to sell the Keurig Elite B40 Single-Cup Brewer and a variety of K-Cups. With a stunning 50% of the stock short (I cannot think of any company in America I would be so scared to be short) we will most likely see GMCR trade well into the $70's on Thursday.

Here is how I get to $100 for GMCR:

GMCR is building an amazing recurring revenue business. Once a Keurig coffee machine is placed in homes, hotels and offices; the company has built in recurring sales for a long time selling K-cups.
With a market cap of just $1.6 billion, this is still a small cap company compared to its potential.
I am sure Mars would love to buy them out, but bet the company won't sell because it knows it is leading a revolution.
The company expects to expand its K-Cup production from 2 mln per week to 8 mln per week by this fall. Who else do you know that is expanding production 4x?
The company is making good progress on the grocery store front, as it is currently in 3,800, but the goal is to get to 15,000 locations.
Once people buy a Keurig coffee machine, they are buyers of K-cups for a long time.
This is an unreal OPEN ENDED situation in my mind. Open ended means the company can sell in so many more places and around the world for years to come. The years to come part is what gives stocks a much higher PE. I now think it can (will) earn $2.50 EPS next year (starting 9/09). Put a 40x multiple on this and the stock is $100 before the end of this year.
My conviction level from 1-10 is 10. I do not post such conviction lightly.

$10 Rule stock with BIG potential

2009-04-19T19:05:00.001-04:00

PANL ($10.30) could be a good takeover candidate as the potential of OLED is just too huge for giant tech companies to ignore. Samsung Mobile Display, a venture of Samsung Electronics, said on Sunday the global smart phone market was expected to grow to 500 million units in 2012 from 170 million in 2009 (huge for Blackberry maker RIMM and iPhone maker Apple). Smart phones would account for 29 per cent of the entire mobile phone market in 2012, compared with 14 per cent in 2009, Samsung Mobile Display predicted. It said growing smart phone sales and touchscreen adoptions would boost sales of organic light-emitting diode (OLED) displays, a small but fast-growing display segment. Samsung says OLED displays will become all the rage with an estimated 50 percent market share in the next five years on all mobile devices, including but not limited to mobile phones, PMPs, GPS navigation units and digital cameras. With over $150M invested in OLED research over the past decade, Universal Display (PANL) has built a strong worldwide patent portfolio with over 940 patents issued and pending worldwide. Their portfolio is one of the largest in the OLED field. Universal Display has entered into more than 30 business agreements with manufacturers in Japan, Korea, Taiwan, China and the U.S. These partnerships include companies such as Chi Mei EL, DuPont Displays, Konica Minolta, LG Display, Samsung SMD, Seiko Epson, Sony, Tohoku Pioneer and Toyota Industries.

Something huge is happening

2009-04-05T15:32:00.006-04:00

This post is longer than usual because we need to talk about Amazon and my thesis that this company is on the verge of something huge and game changing (the stock action is starting to indicate it too I believe). I can now envision a day when we read most newspapers, magazines and books on an electronic /wireless device. In this case...Amazon's Kindle. First off, most people want (and need) the mobility of reading books, magazines, and papers away from their computer..so this stuff won't go online. We read books, magazines and papers everywhere...planes, trains, parks, beaches, bed, bathroom, classrooms, offices, couch, etc. We want it in our hot little hand...the lighter and smaller (within reason) the better.
Imagine the profitability of distributing all this stuff digitally (and wirelessly) instead of printing, storing, shipping, mailing and delivering papers, mags and books. I believe high school and college students could start using the Kindle instead of schlepping heavy textbooks around. Why continue paying $50-200 for a hard bound text book you read once? Printing and distributing is extremely expensive for publishers of books, newspapers and magazines. Publishers would love to see people read their content for a fraction of the cost electronically. Print publishers of all kinds who are now hurting could see profitability improve dramatically.
Who sends hand written letters anymore? We all use email, instant messages and or text messages now. Now, I believe the print world is changing dramatically right before our eyes. Nearly every paper and magazine is losing circulation and advertisers so fast that many are on the verge of bankruptcy. With a market cap of $33 billion...I am pretty sure Amazon will be more valuable as a technology company distributing everything we read instead of an Internet retailer. It is a LOT cheaper, more efficient ,and saves a lot of trees to get our papers magazines and books electronically.
Here are the pretty amazing highlights (my opinion) of Kindle device (from Amazon.com). 1. 3G wireless lets you download books in about 60 seconds right from your Kindle, anytime, anywhere; no monthly fees, service plans, or hunting for Wi-Fi hotspots. 2. Lasts 2 weeks without recharging (4 days with wireless turned on). 3. Over 250,000 books plus U.S. and international newspapers, magazines (includes automatic wireless delivery), and blogs available. You have all your books with you at all times. 4. Most NYT bestsellers are $9.99. 5. Amazon's vision is to have every book ever printed, in any language, all available in under 60 seconds on Kindle. 6. At 10.2 ounces, Kindle is lighter than a typical paperback and as thin as most magazines. Barely a third of an inch in profile, you'll find Kindle fits perfectly in your hands. 7. Kindle is completely wireless and ready to use right out of the box--no setup, no cables, no computer required. 8. A copy of every book you purchased is backed up online at Amazon.com in case you ever need to download it again. You can wirelessly re-download books for free anytime. This allows you to make room for new titles on your Kindle, knowing that Amazon is storing your personal library. 9. Kindle's screen reflects light like ordinary paper and uses no backlighting, eliminating the glare associated with other electronic displays. As a result, Kindle can be read as easily in bright sunlight as in your living room. 10. You can increase the text size of your favorite book or periodical with the push of a button. 11. By using the QWERTY keyboard, you can add annotations to text, just like you might write in the margins of a book. And because it is digital, you can edit, delete, and export your notes. Using the new 5-way controller, you can highlight and clip key passages and bookmark pages for future use. You'll never need to bookmark your last place in the book, because Kindle remembers for you and always opens to the last page you read. Kindle makes it easy to search within a book, across your library, in the Kindle Store, or even the Web. To use the search feature, simply type in a word or phrase you're looking for, and Kindle finds every instance in your book or across your Kindle library. 12. You can search and shop the Kindle Store wirelessly right from your Kindle, allowing you to click, buy, and start reading your purchases within a minute. No need to judge a book by its cover. Kindle lets you download and read first chapters for free. 13. With the new text-to-speech feature, Kindle can read every newspaper, magazine, blog and book out loud to you, unless the book is disabled by the rights holder. 14. Come across a word you don't know? Simply move the cursor to it and the definition (includes The New Oxford American Dictionary) will automatically display at the bottom of the screen. Kindle also includes free built-in access to the world's most exhaustive and up-to-date encyclopedia--Wikipedia.org. 15. Transfer MP3 files to Kindle to play as background music while you read. You can quickly and easily transfer MP3 files via USB by connecting Kindle to your computer. 16. With Kindle, you are able to download and enjoy more than 50,000 audio titles from Audible.com (Amazon just bought them out - now we know why) including bestselling audio books, radio programs, audio newspapers, and magazines. Due to their file size, audiobooks are downloaded to your PC over your existing Internet connection and then transferred to Kindle using the included USB 2.0 cable. Listen via Kindle's speaker or plug in your headphones for private listening.
Why this is potentially (likely) game changing. 1. Readers love the ease, convenience and lower cost of their favorite content. 2. Publishers love it because they save on all the other expensive stuff other than writing (printing, binding, shipping). 3. Amazon loves it because people tend to buy more papers, magazines and books using this device and Amazon's margins are way better too...it is simply way easier and cheaper for all parties.
Who are the losers from this massive shift that is just starting? UPS (biggest shipper for Amazon), book binders, ink manufactures, paper companies, box manufactures, trash companies, book shelve sellers, & retail book stores.
To see the Kindle for yourself...visit the site here.
I am eying Amazon calls for a big move.

Why Comedians are Important

2009-03-16T19:57:00.001-04:00

Are comedians indicating a coming change? When Jay Leno, Jimmy Kimmel, Saturday Night Live, Dave Letterman and Jon Stewart all spend a huge amount of time joking about the stock market and the economy (how pathetic and bad it is)...is that a signal of a top in pessimism (and hence some kind of bottom in markets)? The exchange between Comedy Central's Jon Stewart wasn't funny at all actually...Stewart was as serious as a 60 minutes reporter when interviewing Cramer on his show last week. The interview was on the front page of Yahoo news, covered by CNN and made the from page of the NY Times website on Friday. I cannot know if last week was the low for the year...nobody can know that without the benefit of hindsight. What I do know is, when the media (and comedians in particular) cover something this extensively...it is almost always signals a coming top or bottom in that subject matter.

Inequality is everywhere...get over it.

2009-03-04T19:23:00.001-05:00

This isn't political in any way...just a random thought. The Government cannot legislate away income inequality any more than we can do away with inequality in attractiveness, height, athletic ability, artistic ability, eye sight, good genes that leads to a long healthy life, intelligence, parenting ability, personality/sense of humor, or coordination. It isn't fair that I don't look like George Clooney, am 6 feet 1, can't dunk like Kobe Bryant, or as funny as Jerry Seinfeld. Imagine a teacher calling you in telling you it isn't fair that your kid is so much smarter than all the other kids in the class. The whole thing is absurd when you extend the inequality argument to every other area of life.

Still on the lookout for the Hulk.

2009-02-26T14:23:00.001-05:00

Here is how an Incredible Hulk type rally can develop. It starts with some slight green on the screen...therefore the longs are not getting stopped out of their positions. Then some cash comes off the sidelines to start accumulating sending shares higher still. Shorts don't believe it and short some more but it doesn't work and stocks rally...this triggers stops from those short stocks. Individuals then stop calling the mutual fund companies with redemptions every day. Sellers stop selling because things are finally coming back. The trillions of $ on the sidelines starts to get itchy and coming in to buy. The fast money hedge funds see it going up so they are buyers instead of sellers. When does this scenario start to develop? It has nothing to do with news flow...we had a 1500 point rally a couple months ago when the news was still bad.

Looking for the Incredible Hulk

2009-02-22T00:03:00.003-05:00

As the meltdown continues - the S&P is now down 170 straight points (18%) and has been down 6 of the last 7 weeks, I am getting more and more invested for a counter trend rally (this week?). A hint of a potential rally appeared Friday as many stocks underneath the surface performed well despite another -100 day for the Dow. That being said...it is important to have stops in place just in case. There is a significant rally ahead...when and from where is the hard part.
The reason I am accumulating on the way down is because I sense the Incredible Hulk may show up and things get so green, so fast there will be no way to get in without prices having already moved so much.
I bought some April calls on the S&P 500 on Friday.
The parade of bearish guests on CNBC is simply amazing to me. I know this is a scary time, I feel it too, but can every bear be so right for so long without being tested at some point?
It is very weird seeing the majority not being able to imagine things will get better ever again. I am not being a Pollyanna, I see the negativity...and the reasons for it that is causing the incredible media coverage all over, I read it all day every day just like you do. I just wonder if the worst case scenario that is now so widely discussed is the most likely outcome of if prices at least reflect much of the reality already?

Assume positive intent

2009-01-19T19:55:00.001-05:00

By all accounts, the world will be watching with great interest, hope and admiration on Tuesday. Regardless of who one voted for, it sure seems the country is rooting for the new guy Mr. Obama. I know I am. An article in the NY Times tells the story...it states... In Oklahoma, where not a single county voted for Barack Obama, attitudes about his presidency are now softening.

It is amazing how certain events like a change of President can change the mood of an entire country (or world). Bush has an all time low approval rating and Obama has an all time high approval rating. The same problems exist, the only real change is one single man in a big White House, yet people like the idea of a change and are as hopeful as ever. I would argue that 1 man so far removed from all of us doesn't affect people down to an individual level very much...but the attitude sure can change.

The attitude towards Obama seems to be exactly what Indra Nooyi (the CEO of PepsiCo) learned from her father. "Whatever anybody says or does, assume positive intent. You will be amazed how your whole approach to a person or problem becomes very different. When you assume negative intent, you're angry. If you take away that anger and assume positive intent, you will be amazed." This different attitude really can change the interaction and outcomes with other people.

Nothing takes the past away like the Future

2008-11-24T11:15:00.003-05:00

People are at restaurants, at the movies, attending concerts, and getting gas...yet stocks have fallen to levels worse than the great depression...when we had soup kitchens and 20% unemployment. Many situations are simply no where near as bad as the stock prices on your screen suggest. There are times when the stock price is just plain wrong. How do we know this? Because stocks that were $120 or $50 5 months ago and have dropped to $5 or $10 were dead wrong at the levels just 5 months ago.
Valuations on many stocks are lower that 72-73 bear market.
Thinking irrationally now and shorting all these stocks at 5x earnings just because they go down every day is as crazy as buying the Internet stocks in 1999 just because they went up every day...thinking valuations don’t matter.
I had this typed and ready to email around 2 pm on Friday (I did post in the chat room). The negativity is so thick, the panic selling is so crazy, and valuations are so low that I firmly believe prices have WAYYYYYY overshot reality for so many stocks that I am tempted to go “all in” on full margin here and yell from the rooftop to buy hand over fist (with a realistic yet loose stop -15%ish).
Money will not be made buying WMT, JNJ or Mickey D's. The massive money will be made buying stocks that are down 75 percent that have the mother of all snap backs. There are hundreds of names that will survive, have little debt, sound biz models, and the valuation is insanely cheap.
To give you a sense of how crazy some things have become. Dry bulk shipping rates (grains, iron ore, etc) for global trade have dropped from $233,000 per day in June to $3,100 per day this week. What on earth drops from $233,000 per unit to $3,100 per unit in 5 months? Maybe $233,000 per day was a bubble, but even if we assume $80,000 per day as normal…what drops from $80,000 to $3k? It is not rational and is not sustainable.
Stocks that are $5 or less can be treated as call options with no expiration.
After going through the charts this weekend for several hours…I have never, ever seen so many stocks that I want to buy at crazy cheap prices. I now believe we have seen the low for the year.

I am not making money right now...

2008-11-21T13:36:00.001-05:00

I'm not making money lately as the tsunami of declines has gone to extremes I just did not foresee. I wake up each day and think there is no way I can be surprised any more than I have been already...and everyday I am surprised again (these last few weeks in particular). Things seem so dire right now that it almost seems impossible to even consider that the market can ever muster a rally. What keeps us going? The opportunity to make an ungodly amount of money once this ends. We just need to get there with as many financial and emotional marbles as possible…even if it is less than we had Sept 1st (hand raised).

The pace of pain and despair is accelerating.

2008-11-12T21:51:00.002-05:00

The pace of pain and despair is accelerating. The erosion of wealth and confidence is more widespread than ever (it is worldwide and billionaires are losing fortunes too). Government leaders are scared and no longer trusted, company execs are as downbeat as ever, and individuals are fighting for their financial lives. There is little doubt that most are more concerned about survival than profit at this point (I am still looking for profit for what it’s worth). In a nut shell, people are freakin’ out.
Our current state is unlike anything anyone has ever seen before (60% of people own stocks in some way, there are trillions in derivatives, and debt levels are unprecedented). If you are participating the last 2 months, or even just watching while sitting in cash, you are feeling the frustration, fear, losses, and depressing wonderment of what the heck is going on and when and how will it end or just abate somewhat. One thing is becoming obvious, Ms. Market is going to make sure as few people as possible are on board whenever we do see a monster rally (yes, there is one out there).
In the most dangerous market ever, we can try anything as long as we are disciplined and define the risk. My positioning the last few days is not an all or none last stand…we are diversified and have protective stops. I am willing to risk 3-7% here and there in an effort to make 20-30%.
One month T-bills now yield .02%. This means $1 million in a 1 month treasury will earn you $16. Seriously, I would rather bet $16 on a football game this weekend. 3 month treasury yields are now a paltry.14%. This means $1 million in a 3 month treasury will earn you $350. I don’t know about you but I would be happy to take a loan for $1 million for the next 3 months and double that return and pay someone $700.
Please preserve some capital by not going all in and just closing your eyes and hoping for the best. The declines we are seeing this year make the crash of 87 seem like a walk in the park. There will be a day when we can make 3, 5, and 10 times our money (in numerous options)...but you must have some money left to participate.

Eye of the Storm

2008-10-28T12:00:00.004-04:00

20% of mutual funds hold 75% of the assets. This means that trillions of dollars are controlled by about 1,000 individual portfolio managers.
Through objective eyes, this is the most scared (of a 1000 point move either way on any given day) and confused market I have ever seen.
This is the time to think of stocks where you would want to own the entire company…not the stock…the whole company…where you are the CEO…have all the products, services, locations, plants, technology, sales, profits, debt (if any) & competitors here...and abroad. Think of businesses that will not only survive this mess but thrive on the other side. I am working on my list for when we swing for the fences (definitely not yet).
By definition, people will be most bearish or apathetic at the bottom. News will also be the worst near the bottom. I find it interesting that consumer confidence hit a record low of 38 in October…and the market rallied 890 points.
Survival for portfolio mangers means trying to not lose so much and meeting redemptions by raising cash in downtrends…and then being forced to chase performance once an up trend starts. Can you imagine the pain of losing 45% during the worst 2 months in history…raising cash to be safe and then missing the rally once one starts? This natural law of performance anxiety both ways will never cease to exist.

We are luckier than Olympians

2008-08-19T15:50:00.002-04:00

We are very lucky we trade instead of swim (or any other Olympic sport). Consider the comparisons and realize how lucky we have it. Olympic athletes must train like crazy for 4 years and they get just 1 shot to win a gold medal on the world stage. The pressure must unimaginable. You can win or lose by 1/100th of a second. There is only 1 winner. If you stumble or it just isn’t your day...your chance of success is gone. You can’t use a stop loss or diversify. You can’t come back and say I will do better on Tuesday…or next week…or next month…or even next year. 4 years is the wait…and the age clock is ticking. We on the other hand can come back new and fresh each day as long as we stay in the game. We can win many ways…long, short, options, day trading, swing trading. We have many chances each month. There is no competition where only one of us can succeed. We can all make 100% or 300% on a trade. We can switch from tech stocks to solar stocks to medical stocks easily (an athlete can’t switch from swimming to running to volleyball). We can trade U.S. stocks or International stocks (or both). There is no age limit to what we do. Ideally, we learn and get better as we age. All in all, I thank my lucky stars we have chosen this path instead of one where it is all or none in a 3 minute race and only 1 person can win.

The case for SOHU to rally to $150

2008-05-16T15:03:00.003-04:00

Sohu (SOHU - $82.50) - Sohu is a leading Internet portal in China (similar to Yahoo). They also have a very popular online games that helped them report huge earnings 2 weeks ago. Revenues surged 156% and earnings exploded by 256% last quarter. They have beat analysts estimates by an increasing % each of the last 4 quarters (I can’t remember ever seeing that). The trend is they have beat estimates by 15%, 19%, 25% & 48% the last 4 quarters. This indicates the analysts still do not have a full understanding of how fast they are growing. SOHU is the official online sponsor of the 2008 Olympics in Beijing. This could become the next BIDU type stock ($90 to $300 in 6 months)…at least that is what is starting to crystallize in my head. What I like is, SOHU is still relatively small with just a $3 billion market cap (for comparison, Baidu is $12 billion). I now think SOHU can get to $5-6 billion market cap pretty easily, especially with them on track to make $3.35 next year (PE is very cheap at just 24x earnings). Put a 45x PE on next years earnings estimate (still way too low in my opinion) and you get $150 stock. For comparison…BIDU sells at 55x 2009 earnings and a whopping 16x revenues so there is reason to believe SOHU can get a much higher valuation. I can visualize Sohu galloping higher day after day as multiple growth funds continue to build a position of hundreds of thousands of shares each.
I like the stock and have made the Decemeber $135 calls a new POWER PLAY.

ENER pays off - BIG!

2008-05-11T17:59:00.005-04:00

Patience and persistence paid off this week after ENER reported earnings and their shares surged 45%. Not only was the stock a big winner (we had a 3x position bought 3 weeks ago), but most of us also got a major home run with the September $45 calls ($1.70 to $9.10 +435%). Energy Conversion Devices (ENER) is a stock that I have followed for over 4 years. This company is really 3 stories rolled into one. They make batteries for hybrid cars, the make thin film solar, and they are working on phase change memory which some expect to be the next big thing in memory for all devices. In another example that stock picking matters...despite the markets being down over 2% on the week, it was one of the best weeks of the year for Trade in the Zone subscribers. Onward on upward.

Table pounder option trade

2008-04-25T22:14:00.003-04:00

Transocean (RIG - $154), the world’s largest offshore drilling contractor, provides the most versatile fleet of mobile offshore drilling units to help clients find and develop oil and natural gas reserves. This company is in the sweet spot of the energy bonanza (the need to find more oil). A startling statistic about the world oil supply is, only 5-10% of the oil is actually owned by the major worldwide oil companies you and I think of (Exxon, Chevron, BP, Shell, etc.). 90%+ of the oil in the world reserves is owned by countries (and many of them are not friendly, safe places). Think Venezuela, Columbia, Iran, Africa, Saudi Arabia, Kuwait, Russia, etc. Many of these countries are raising taxes, or raising the amount of money they are demanding from the global oil companies to drill in their territory. There really isn’t much a major oil company can do if a government demands more money when they are extracting oil from their land. The thing is, with Transocean, no matter who owns the oil - a major global company, a friendly government, or an unfriendly one - they all need deep water rigs from Transocean to extract the oil. This should make RIG’s earnings power much more dependable than a major oil company over time (these governments don’t have the technology or deep water drilling rigs themselves). I have taken a sizable position in the August $200 calls here with a cost basis of $1.55. My reasoning for this trade is Transocean is about to get a much higher PE ratio. Schlumberger (SLB), another oil service company trades at 18x earnings while RIG trades at a huge discount at only 9.5x earnings. This is crazy in my opinion as deep water drilling is very predictable for the coming years. If RIG gets a PE of 13…the shares would trade up to $220. I think that is where this stock is headed this year. This is a potential home run trade.

Trade in the Zone Performance

2008-01-12T13:35:00.000-05:00

Chiptle Mexican Grill (CMG) puts

2008-01-05T16:58:00.000-05:00

We just booked a nice gain (+100%) on the Jan $130 puts. With domestic restaurant stocks in free fall, this stock looked way overvalued at 50x 2008 earnings estimates. If same store sales slow, this stock still has downside toward $100. I will look to re-load in more downside puts if the stock rebounds in coming weeks.

All Aboard

2007-10-17T15:28:00.000-04:00

VMware (VMW - $99.90) is the next big technology stock in my opinion as virtualization software is the next big thing. As an example, Hewlett Packard is reducing the number of server centers around the word from 19 down to 2 (huge cost savings)…all because of the virtualization software that VMW provides (they have 90% of the market share). VMware has 1,051 job listings on its website. This is the true sign of a very fast growing company. Cisco Systems (CSCO) has just disclosed an 8.1% stake in VMW. This is quite rare for CSCO to take such a large stake in a public company and is very bullish in my opinion. In addition, Intel has a 2% stake in the company. Based on the way the stock is moving higher in recent weeks you can see the big growth mutual funds competing with one another to build a position in this stock (I expect this to continue). I am looking for VMW shares to gallop higher in the days, weeks, and months ahead…moving $5+ on some days. This is my favorite technology stock by far. I have taken a sizable position in out of the money upside calls for subscribers.

100% per year.

2007-10-15T23:57:00.000-04:00

No matter what the market does in any given year (up 15%, down 15%, or flat) there are always dozens and dozens of stocks that go up 100% or more. Our job (OK, my job) is to find those. Another way to think of this is the market is a rolling wealth creating machine. No industry or business can grow 100% per year forever. But, even in a recession, there are probably 50 companies and several industries that have a new cycle, a new product, or a new service that will grow by leaps and bounds for a year or two. This is a fact in the business world every single year. The beauty about trading and investing is we can be in any industry or company with a push of a button. Unlike many changes in life…there is no messy divorce, we don’t have to move, there is no commute, we don’t have to learn a new language (Chinese!), we don’t have to learn a new trade, we don’t lose our pension or health insurance & we don’t lose any friends. Another wonderful aspect about what we do? We usually know if we made a good investment within a month or two, and if we did mess up…we can change again (sell stock A and buy stock B).

Wynn is a Great Bet

2007-09-18T13:34:00.000-04:00

Wynn Resorts (WYNN - $140) is simply the best casino operator in the world...hands down. I just returned from another visit to Wynn Las Vegas and I have to say, I now have even more confidence in Steve Wynn and his management team than ever before. I have liked WYNN stock since the $70's and have traded it on and off all the way up. After my most recent visit I am convinced that this stock is headed to $200+. I have several reasons for this bullishness. 1. The golf course behind Wynn Las Vegas is probably worth $1 bilion+ and will be developed in the years ahead (probably 3 years from now). 2. They recently announced a $1.2 billion stock buyback that is still largely uncompleted...while the stock was at a new high. If Steve Wynn sees value in the stock...you should too. 3. The global wealth creation story was amazing to see in the high roller pit where 90% of the players where from outside the United States (Asia & Latin America were most represented). 4. The management team realizes that running the top casino resort is not about just placing a slot machine or table game on the floor and giving away free rooms or show tickets....it is about creating feelings and experiences for the right clientele. Like trading, he gets it that it is more art than science to attract and keep the best people to his properties. 5. WYNN - with a market cap of $15 billion is cheap compared to Las Vegas Sands (LVS) which has a market cap of $45 billion.

A Good Trade - Defined

2007-08-28T18:44:00.000-04:00

Good Trade Defined - When making trades and reviewing your positions, it is important to remember that the results of any 1 trade can be somewhat random. I know that may seem crazy to some of you but there is simply no way any of us can know exactly which trades are going to be winners ahead of time…otherwise, we would never make the losing trades! The important thing to remember is the analysis and the execution of your trades over time. Nobody has all winners…how we handle the losers make a big difference in our performance. Ideally, when taking a loss it not only frees up our cash, but it also frees our mind to move on to much better opportunities. Sometimes, we just need to move on and get the loser off the screen. When taking a loss, it can still be a good trade…defined as: solid analysis and good execution (remember, they can't all be winners...selling at a small loss can be a great trade...saving you from further losses and allowing you to re-deploy the capital in better ideas. From now on...Change your definition of a good trade from “winner” to “solid analysis and execution.”

China vs. Japan

2007-07-27T17:09:00.000-04:00

The market vale of all Chinese and Hong Kong listed stocks is now equal to that of Japan ($10 trillion). The sheer numbers (10x more poeple) and growth potential in China is far greater than anything Japan has ever seen. Is there any doubt the total value of all stocks in China cannot jump to $50 or $100 trillion in the next 10-15 years? In my opinion, China is cheap based on their population (1.3 billion) and land mass. The addressable market for workers, businesses & consumption is enormous for as far as the eye can see.

Conviction!

2007-07-17T12:06:00.000-04:00

Conviction tells the story. On Tuesday the McDonald's CEO said U.S. business still has "huge upside potential." That is the kind of conviction I am searching for when looking for new ideas. Listen for this when companies report earnings the next few weeks. The best stocks are usually when the CEO has strong conviction and imagination about the future. Listening, watching and then interpreting key phrases and trends are keys to becoming a great trader/ investor. It is not just crunching numbers or watching charts. Case in point, the Google and RIMM CEO’s both have super strong conviction and imagination about their future potential worldwide.

Why you should buy momentum.

2007-07-10T22:54:00.000-04:00

Life is all about momentum. Momentum trading sometimes gets a bad reputation…like it is somehow foolish, ill advised or just following the herd...and therefore not smart. I strongly disagree that there is anything bad about momentum investing and want to discuss how we all follow momentum in nearly every activity in life.

Below are specific examples of momentum:

You go to the best and most popular restaurant you can find (at home or on vacation).
You support, praise, and reward you child for getting good grades. The best students go to the best colleges and then get the best jobs.
You throw a party when your favorite sports team goes to the Super Bowl, World Cup, or World Series.
You buy every Beatles or U2 CD when they are already #1 on the charts.
You watch the # 1 TV show or go to the # 1 movie of the year.
You wear black or wear longer shorts to stay fashionable and not look like a dork.
You name your child Jacob or Emily (most popular names in 2006) instead of Billy or Beverly (popular in the 50’s).
You take the #1 selling medication in the world to lower your cholesterol (Lipitor).
You use Google search when looking for something.
You get a mobile phone with a camera while everyone else is getting one and you could not even imagine such a device 20 years ago.
Making your 2nd million is far easier than the 1st million.
You drive a Japanese or German car even though we were in a World War with them just 64 years ago. Proof things really do change.

Trading with the trend (another word for momentum) is one of the smartest things we can do as investors. We do it in nearly every other aspect of our lives so I see no reason to be a major contrarian when recognizing important business trends... and thus picking good stocks. If we just recognize important trends, we can understand how stocks like Google (search), Research in Motion (smart phones), many solar names (alt energy), Crox (hip shoes), Nintendo (user friendly game), & Apple (iPods) can be such great momentum stocks.

Solar shines

2007-07-09T23:59:00.000-04:00

Solar still shines bright. The solar stocks continue to be the hottest group in the market and I expect this to continue for the balance of 2007. While Trina Solar (TSL) & First Solar (FSLR) have been my focus in recent months, I initiated a position in SolarFun (SOLF - $12) today with the December $15 calls at $1.35. I am giving this plenty of time to work by going out 6 months. This is another Chinese solar name with a market cap of just $600 million. Revenues are expected to surge to $1.8 billion this year (from $630 million in 2006) and explode to $3.6 billion next year. Earnings estimates for 2007 are $1.52 and a whopping $4.18 next year. Even if they miss earnings by 50% (not likely) and only make $2 next year, the stock looks like a great value selling at just 6x earnings. I can see SOLF getting to $20+ in coming months as investors and green oriented growth funds continue accumulating solar names.

Why Research in Motion is STILL a buy

2007-06-30T12:59:00.000-04:00

Research in Motion (RIMM - $200) - I continue to believe the open end potential for RIMM is huge these next couple of years. The world is expected to have a mind numbing 3 BILLION mobile phone users by 2008. Their opportunity comes from the fact that RIMM has just 9.3 million subscribers out of a potential 3 billion. There is no doubt that the massive shift to smart phones is just getting started. People are moving up to a mobile device that can make a call, email, text message, take photos, listen to music, & surf the web. The newest Blackberry devices do all these things and far cheaper price than the Apple iPhone. I can see RIMM getting to 13 million users quickly (this year)...then increasing another 50% again next year. If (when) they get to 20 million users, it would still be less than 1% of the world market. In addition, RIMM has 2-3 new Blackberry devices coming out in the next 6 months (details are still a secret). This will continue to fuel their growth all over the world (never forget to think global with situations like this).

RIMM’s Blackberry’s are sold in 100 countries on 300 carriers.
The iPhone is sold in just 1 country (U.S.) and by 1 carrier (AT&T).

It took Research in Motion 5 years to get to 1 million Blackberry subscribers. It took 10 months to add the 2nd million. In the last quarter they added over 1.2 million. I expect this pace to continue to pick up steam and there is no reason the can’t start adding 1 million per month in the not too distant future. I have traded RIMM a lot over the last year and recently recommended the December $240 calls to subscribers at $1.45 (currently $8).

61% of the World's Population

2007-06-24T16:20:00.000-04:00

Asia - It is estimated that Asia will be home to a staggering 61% of the world's population by 2020. The ramifications of this massive demographic and economic shift are mind boggling. One thing is for sure...their demand for natural resources shows no end in sight. The rise of a middle class, and the massive numbers of young people makes it essential that we continue to focus on companies with a global footprint (especially in Asia). More than half my ideas are based in Asia or have big exposure to their markets.

Favorite Quote

2007-06-15T14:12:00.000-04:00

"Lack of money is no obstacle. Lack of an idea is an obstacle."

-- Ken Hukata

Catch Crocs

2007-06-09T09:59:00.000-04:00

Crocs (CROX - $43) - These guys may make some of the ugliest shoes in the world, but they are also one of the fastest growing and most profitable companies ever. Look at this sales growth. 2004 sales - $13.5 million. 2005 sales - $108.5 million. 2006 sales - $354.7 million. The estimate for 2007 is for sales of $686 million. Longer term, at least one analyst thinks they have potential to get up to $3 billion in annual sales. How do they do it? Crocs' proprietary closed-cell resin, called Croslite™, enables them to produce a soft and lightweight, non-marking, slip and odor-resistant shoe that are popular with all ages & genders. They have also entered into licencing deals with NASCAR, the NFL, Disney, Nickelodeon, Marvel & various Universities. At a mere $30 a pair, many people buy several pairs to fit their mood (they are now selling 5 million pairs a month). Interestingly, Crocs' "Croslite" technology is not patented, but instead is a trade-secret. The reason they didn't get a patent is so they wouldn't have to share the magic formula and manufacturing process with imitators...much like the recipe for Coke (very smart in my view). People who spend a lot of time on their feet like kitchen staff & nurses live in these things. Kids beg parents to customize their shoes with little $2.50 charms called Jibbitz (Crocs bought this accessory company last year).
Earnings estimates should keep going up along with price targets...this could happen after the recent conference where they announced the new fall line-up with some higher price points and more fashionable shoes. There is also likely to be more Wall Street coverage and support as the company has now passed fad status in a big way. I live in Baltimore and have a friend who works at Under Armour...they just lost a key design person to Crocs. The current highest earnings estimate for 2008 is $4 (meaning the stock sells at just 21x the current est.) I think they have potential to earn $4.50-5 next year. They have beaten earnings est. by an average of 37% the last 4 qtrs. More importantly, they are still being conservative on guidance in my humble opinion. As of May 10th - 25% of the float was still short (what a nightmare for those betting against these guys so far). On factor that doesn't get a lot of attention is, they have a lot more opportunity outside of the U.S. than most currently realize (they currently sell in 70 countries and this is the fastest growing part of the company). See "Think Global" article below. I caught the move from $47 to $70 but feel it is time to get back in this stock. The stock will split 2-1 on June 15th.

Think Global

2007-06-07T12:13:00.000-04:00

When thinking about Google, don’t ask yourself if your dry cleaner, owner of your favorite restaurant, dentist or neighbor own GOOG shares (trust me, they don’t – and that’s bullish)…ask yourself if the big institutions who manage trillions of $ around the world in Europe, Asia, North & South America and Asia want (need) to own this stock. The money managers in Tokyo, Honk Kong, Singapore, NY, Chicago, LA, Toronto, Frankfurt, London, Rome, Madrid, Mexico City, Sao Paulo, Zurich, Sydney, Bombay, Riyadh, Dubai, Johannesburg, Moscow, Tel Aviv, Athens, Cairo, Paris, & Beijing are the people who want to own a position in the leading technology company on the globe.

I cannot emphasize this global thinking enough. Those of you who have experience traveling to various places around the world understand what I mean and you have a huge advantage in my view. It is critically important to think about the 95% of the people who do not live in the U.S., and the vast amounts of wealth that there is around the globe. Intellectually of course, I have known this fact and have traded stocks with international exposure many times…but I never really gave it enough weight when making my investment decisions. Unconsciously, I clearly have known this because so many of my favorite stocks have big global business, but I am just now consciously considering these facts and realize there will be no going back to thinking only of what’s hot in the U.S.

The double position of Google (GOOG) June $520 calls recommended to subscribers in my newsletter reached my sell target and were sold at $12 today (we paid $.85). That's 1310%. We still own the July $550 calls.

Ga Ga for Google

2007-06-02T15:46:00.000-04:00

Google (GOOG - $500) is ready to rock after a year of underperformance. New services are being rolled out at a very fast pace - Google Docs & Spreadsheets are here now, and presentations are coming this summer; Google Maps are leapfrogging every other online mapping site (now with traffic, free calls to businesses, & customized maps where you can draw, make notes or upload photos); Google Checkout is a sleeper nobody talks about, Blogger (GOOG’s free blogging service) continues to lead; real estate listings and search are now available; free 411 is a huge convenience so we don’t have to pay the phone company $1.50 every time we need the number for the Mexican restaurant down the road; mobile search will be the next frontier; Google Finance is improving all the time; & YouTube is still the go to online video site and will likely get more deals with networks and studios in the months ahead. Their massive cap-ex ($1.9 billion per year) for better and faster search and service for you and me almost guarantees continued leadership. I have been advising out of the money calls to define the risk and get the most bang for the buck.

Goldman is as good as gold

2007-06-02T15:09:00.000-04:00

Goldman Sachs (GS - $230.70) - Goldman is the world leader in investment banking, securities trading and principal investments, & investment management services worldwide. They were an advisor in over $1 trillion in deals in 2006. Revenues are now exceeding over $200 million per business day. Profits last quarter were an amazing $51 million per business day. With a PE of just 10 and a market cap of $94 billion, this is very undervalued compared to their revenues and profits (I expect them to make over $25 per share in 2007). They hire the best and brightest from around the world and they are buying back stock hand over fist which should help support the stock in any downturn. Last quarter, they bought back an average of 210,000 shares per day. If MasterCard (MA) can trade at 26x next years earnings estimates, and the New York Stock Exchange (NYX) can trade at 24x earnings estimates, then certainly GS can trade for 12 x earnings (assumed $25 per share) or up to $300 a share. I have been recommending out of the money calls for subscribers.

Nintendo

2007-06-02T14:59:00.000-04:00

Nintendo (NTDOY - $44) was originally recommended in the Trade in the Zone newsletter on January 3rd 2007 at $31.35. NTDOY is still in the model portfolio and is still buyable. The Nintendo Wii is the best selling video game console in the world in 2007 and will widen this lead in 2008. The Wii is cool, fun, and easy for the masses. While hard core gamers (male, ages 15-25) will continue buying the Xbox and PS3; the mass market will gobble up millions of the Nintendo Wii (it sells out all over the world as soon as the shelves get re-stocked). Because of the widespread appeal, I believe analysts are way underestimating the earnings power for Nintendo. Girls, women, parents and grandparents all love this game. It's a ton of fun and easy to play because of the natural movement remote controller. Players use the Wii remote controller to mimic the actions of swinging a racket, bat or club, roll a ball down an alley or bring the left jab. This is still the gaming stock to own for 2007.

Global Warming

2007-04-12T22:08:00.000-04:00

Climate Exchange (CXCHF - $22) is the parent of the European and Chicago climate exchanges, which provide futures contracts and options contracts for emissions. This is a pretty unique way to play the climate bonanza and global warming. The stock has a super interesting “story,” a proven CEO, and major credibility with Goldman Sachs involved in a big way (they own a 19% stake). This is a foreign pink sheet stock so we will only be able to get a quote once a day after 5:30 PM.

RIMM potential.

2006-12-01T21:45:00.000-05:00

How can RIMM go much higher that the current $135? Blackberry products have up till now only been bought by executives, Congressman, and attys. But now, everything is changing with the launch of the Blackberry Pearl and other new consumer oriented products that are coming in 2007. Blackberry products are expected to have just 8 million subscribers in February 2007 (when their year ends).

In my humble opinion, the open end potential for RIMM is huge these next couple of years. According to Nokia this week...the world is expected to have a mind numbing 3 BILLION mobile phone users next year. RIMM has just 8 million out of a potential 3 billion? I can see them getting to 15 million users quickly (thinking next year)...then doubling again to 30 million. If (when) they get to 30 million users, it would still only be 1% of the world market. With their innovative design and great reputation it seems it just a matter of how fast they get there.

Coming up....I anticipate another beat and raise quarter to be reported on December 21st.

Shoot!

2005-12-04T19:15:00.000-05:00

You miss 100% of the shots you never take.

-- Wayne Gretzky

Google Target - $560-700 in 1-year

2005-11-27T16:09:00.000-05:00

How do I get the target range?
I estimate that Google (GOOG) will earn $9.50 in earnings per share 2006.
I estimate that Google will earn close to $14 in EPS 2007.
Put a 40x PE on my $14 earnings estimate and you get $560 in December 2006
Put a 50x PE on my $14 earnings estimate and you get $700 in December 2006

Advertising

2005-11-27T16:02:00.000-05:00

When people tell me that Google cannot go any higher (now $428), I tell them that U.S. advertising spending last year was $300-400 billion. Yet, just $10 billion was spent online. The targeted advertising that companies like Google, Yahoo and others provide is infinitely more cost effective than billboards, radio, TV, Yellow Pages or mass mailing could ever be. I expect several analysts to be raising their target and earnings estimates in the coming weeks.

GOOG

2004-11-29T13:32:00.000-05:00

I feel pretty strongly that Google is working on some very big things behind the scenes that nobody is currently expecting or pricing into the shares here ($180). If any big cap technology company can see a dramatic increase in market cap...this is it in my opinion. I am choosing to play it using defined risk calls (POWER PLAYS).

Trade in the Zone

2004-11-24T00:00:00.000-05:00

It is time to start sharing some trading ideas with meaty potential. If you are interested in more information please visit my website at www.tradeinthezone.com.